IMF Staff Concludes Virtual Visit to Georgia
September 15, 2020
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
- The COVID-19 pandemic’s health impact has been well-contained, but it has had a significant impact on economic activity.
- The policy response, including temporary tax relief measures and expanding health and social spending to support poor and vulnerable groups, has been so far successful in containing the economic and social impact of the pandemic.
- Structural reforms to support higher and more inclusive growth remain essential to limit the scarring in Georgia’s medium-term economic potential.
An International Monetary Fund (IMF) team, led by Ms. Mercedes Vera-Martin,
held virtual meetings during September 8-14, 2020, to discuss recent
economic and financial developments and progress with the structural
reforms. At the end of the visit, Ms. Vera-Martin issued the following
“The COVID-19 pandemic has had a major impact on Georgia’s economy. While
the health impact of the pandemic has been well-contained, the external
position has deteriorated as tourism revenues have come to a virtual
standstill. Preliminary data suggest a tentative recovery in domestic
demand beginning in June. Growth in credit to the private sector remains
robust, partly supported by government subsidies on lari-denominated
mortgages. Slack demand and the post-lockdown recovery in supply have
recently put downward pressures on inflation.
“Growth is expected to contract by 5 percent, a slightly higher contraction
than at the time of the Sixth Review, partly reflecting a more severe
slowdown in the second quarter of 2020 and a more protracted recovery in
external demand. Given pervasive uncertainty about the pandemic, downside
risks to the outlook dominate. The realization of these risks, including
from a more prolonged slowdown in major trading partners and a
slower-than-envisaged recovery in tourism, may require continued exchange
rate flexibility and additional policy support.
“Prudent macroeconomic policies prior to the pandemic, including the
build-up of external and fiscal buffers, and strong support by the
international community allowed the authorities to launch a sizable fiscal
package to mitigate the social and economic impact of the pandemic. The
government expanded social transfers, enacted temporary tax relief measures
for businesses and households, and provided some subsidies to sustain
activity in the sectors most affected by the shock. Over the medium-term,
addressing the decline in revenues in 2020 will be important to formulate a
gradual fiscal consolidation, as required by the fiscal rule, and build
fiscal space for needed spending on education and infrastructure. On the
structural fiscal reforms, the mission welcomes the continued commitment to
enhance tax administration, expand the coverage and monitoring of fiscal
risks, and formulate a strategy to improve the corporate governance of
“The National Bank of Georgia (NBG) has also taken several measures to
support economic activity and financial stability, including lowering the
policy rate. At the onset of the COVID-19 shock, the NBG eased capital and
regulatory requirements, provided lari and FX liquidity, and preemptively
requested additional provisioning for banks. In response to declining
economic activity and easing inflation pressures, the NBG appropriately
reduced its policy rate. Maintaining exchange rate flexibility remains
essential to manage the shock.
“Implementation of structural reforms under the EFF has progressed well.
Parliament approved the legislation to index basic public pensions in July,
and the new insolvency law is expected to be approved soon. Timely
implementation of the legislation related to corporate insolvency and
banking resolution will help improve the business environment and financial
sector resilience. Structural reforms remain essential to limit the
scarring in Georgia’s medium-term economic potential and promote higher and
more inclusive growth.
“We are grateful for the authorities open and constructive discussions
during the visit. The team met with Governor of the National Bank
Gvenetadze, Minister of Finance Matchavariani, other senior officials, and
representatives of the private sector. We look forward to continuing the
dialogue during the October mission for the seventh review of Georgia’s
economic reform program supported by the IMF.”
IMF Communications Department
PRESS OFFICER: Nadya Saber
Phone: +1 202 623-7100Email: MEDIA@IMF.org